China needs to work new strategy for its textile export
The fast growth of Chinese textile export to the United States, on the one hand, can be ascribable to the competitive price resulting from the cheap labor force that China offers and relatively low material cost required by Chinese textiles. On the other hand, more importantly, with China's WTO ...12 08 2003 | Read
By Huang Weiping
The fast growth of Chinese textile export to the United States, on the one hand, can be ascribable to the competitive price resulting from the cheap labor force that China offers and relatively low material cost required by Chinese textiles. On the other hand, more importantly, with China's WTO accession, large international distributors directly come to China for procurement. By adopting effective price-squeezing tactics, they have caused price competition among Chinese suppliers. As a result, U.S. textile manufacturers regard export from China to their country as"market disruption", filing an application for safeguard mechanism.
The special transitional safeguard mechanism on China's WTO entry includes two aspects, namely general provisions and special provisions concerning textiles. Article 16 of the Protocol of Accession stipulates that within 12 years after China's entry into the WTO, when products made in China are exported to the territory of any WTO member, if the growth or conditions based upon pose a threat to producers of similar products or products in direct competition with the imported products, or cause market disruption, then the affected WTO member may make a request for consultations until safeguard mechanism is adopted. Paragraphs 241-250 under the Working Party Report on the accession of China also contain similar stipulations on textiles.
Textile and apparel industries are important sectors in China, and textile and apparel exports are highly crucial to this country's economic development. Relevant data shows that at present China's textile industry(including apparel industry) has a degree of international dependence upward of 40%. With processing trade excluded, actual degree of international dependence exceeds 30%. And the apparel industry's degree of international dependence even tops more than 50%.
So far, specific details of restrictions have not been introduced, the implementation shackle has not been finalized, and the impact will not be very evident in this year. However, once the quota restriction is implemented, it will check the growth momentum of China's textile exports, engendering competition pressure in the domestic market.
First, with the production and export of China textile industry being at an intersection, the move taken by the U.S. is adverse to the growth of the industry's production and export.
Second, in the protocols concluded in the Uruguay Round, provisions on textile were formulated separately, and developed countries made commitment to gradually increase quota for developing countries and fully liberalize quota in 2005. That the United States mobilizes special transitional safeguard mechanism against three categories of Chinese textiles means that, by the end of 2008, annual growth export of the three categories from China to the U.S. will be limited to 6%-7.5%. As the United States follows case law, the adjudgment and implementation of the first case has critical influence on similar cases in the future. Thus, with the imposition of special transitional safeguard mechanism on the three categories, other textiles may face similar restrictions. Consequently, Chinese textile enterprises will be at a disadvantage in competing with their counterparts in the international market.
Third, after China joined the WTO, as the United States re-implements quota mechanism, other countries like Mexico and Canada may follow suit.
Finally, the prerequisite required to adopting special transitional safeguard mechanism only involves constituting the so-called"market disruption", far less stringent than"material injury" or"threat of material injury" and"material retardation" required by other safeguard mechanisms. As a result, the practice taken by the U.S. may cause foreign industries, associations and unions to resort to special transitional safeguard mechanism, which is easy to implement, to build trade barrier against China, instead of using more stringent traditional anti-dumping measures.
At present, apart from negotiating with the U.S. and lodging appeals, relevant departments in China need to ponder over our future development strategy for textiles. For example, we may try to raise products' added value, optimize product mix, make great efforts to accommodate diversified market demand, and actively tap the domestic market to allow it to play a greater role in the development of the textile industry. Meanwhile, there is a need to abandon the traditional approach of relying on quantity and scale to compete, because reliance on the model of"staple goods","large scale" and"low profit" makes an excuse for some countries to impose limits on exports from China.
In addition, it's necessary to conduct effective publicity to convince people that import of fine Chinese textile and apparel products at low price is important source of interest and benefit for U.S. importers, distributors and consumers, and that, apart from hurting the operation and employment among Chinese textile enterprises, re-launching quotas endangers foreign investors' interest in the textile businesses they have invested in China, and affects export of textile raw material, textile fabrics and industrial textiles to China, leading to immense negative impact on related interest groups in the United States.
Certainly it is important that we do a good job in the domestic market, like preventing disorderly competition in export and conducting effective regulation over the export of the entire industry. Industry associations may provide guidance for enterprises on how to make the most of rules of origin, trying to evade these import quota restrictions by launching production in countries that impose no quotas and exporting products these countries. Moreover, there is an urgent need to build and improve an early warning system for the industry; especially we need to study the difficulties to be faced by our textile industry after all quotas are lifted in 2005 and formulate countermeasures.@
The writer is a professor from the School of Economics of Renmin University of China. The article was originally published on Page 6 of the Economic Daily November 28, 2003.
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